ServiceNow Inc. (NOW) has been one of the few technology and software as a service (SaaS) cloud companies to have a great 2018. The stock has climbed 40% this year, a solid showing compared to the S&P 500 which has fallen 3%. The stock has been driven higher by strong revenue and earnings growth.

Hedge Funds were very bullish on the stock during the third quarter, increasing their holdings. The buying was so strong among funds that the stock was added to the WhaleWisdom 100 Index on November 15. The stock also moved up to number 26 on the WhaleWisdom Heatmap during the third quarter, from 51 in the second quarter.

Hedge Funds Load Up

During the third quarter, hedge funds increased their holdings by 25%, with the number of total 13F shares rising to 20.5 million from 16.4 million. Additionally, 31 funds created new positions in the stock while 34 added to existing ones. Meanwhile, 7 funds exited and 27 reduced their stakes.

Strong Results

One reason for the strong stock performance has been the company’s ability to report better than expected results this year. ServiceNow has topped analysts’ forecasts the past three quarters rather easily. For the third quarter, the company reported earnings that beat analysts’ forecasts by almost 15%. Meanwhile, revenue came in 2% better than estimates.

Even more impressive is that analysts estimate the company’s strong growth in 2018 will carry into 2019 and 2020. Earnings are estimated to rise by 33% in 2019 to $3.13 per share, followed by growth of 34% in 2020 to $4.20 per share.

Revenue growth is forecast to be strong and rise 29% in 2019 to $3.37 billion, followed by growth of 27% in 2020 to $4.27 billion.

Both revenue and earnings estimates have been steadily rising throughout much of this past year.

Analysts See More Gains Ahead

Even with the stock’s sharp rise so far in 2018, analysts see the stock rising even higher. Currently, analysts are forecasting the stock to rise 14% more to an average price target of $211.23. Of the 33 analysts that cover the stock, 88% of them rate the shares a buy or outperform, with 12% rating it a hold.

The strong revenue and earnings growth appears to be the driving force behind the significant rise of the stock in 2018. Additionally, hedge funds accumulating the shares during the third quarter would suggest that some investors see even more significant gains in the quarters to come. If the steady growth and quarterly earnings gains continue, the stock is likely to have a strong 2019.

This entry was posted on Monday, December 17th, 2018 at 9:32 am and is filed under 13F.
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